Refinancing

Refinancing is any time that you change your mortgage during the current term of the mortgage. You may change the mortgage for a lower interest rate or the amount of the mortgage. Some people will take advantage of a low mortgage interest rate and increase their mortgage to pay off debt that they have that is at a high interest level. Refinancing can make sense when you look at the over all financial picture to see if it would benefit you to make the change. When you do decide to refinance and break your current mortgage term, you will end up having to pay a mortgage penalty. The mortgage penalty will either be three months interest or IRD (Interest Rate Differential) which ever one is greater on a fixed rate mortgage. If you have a variable rate mortgage you will only have to pay the 3 months interest penalty. If you have an open mortgage you will not have any penalty to pay but your interest rate will typically be higher then that of a closed variable or fixed interest rate.

When making the decision on whether to refinance it is best to talk to your mortgage broker about it and review your entire situation, current and future goals with them. Your mortgage broker can do an Annual Review and look at any cost savings after factoring in the amount of the mortgage penalty. You could potentially save thousands of dollars or it may be worth it to wait till the end of your term. Your mortgage broker will be able to go into detail with their calculations and provide you with a report detailing the results so you can make the best decision that is right for you based on accurate information and your goals.

Some more refinancing information:

  • Figure out if this is a refinance or mortgage transfer
    • A refinance is defined as increasing the size of the mortgage
    • A mortgage transfer is moving the mortgage to another lender without altering the size of the current mortgage
  • Contact your broker
    • Complete online application
    • Discussion what options best suit your needs
    • Get pre-approved and obtain a rate hold (if selecting a fixed rate)
  • Review existing liabilities
    • Strongly consider adding any existing liabilities to the mortgage if your interest rate is higher on the liabilities
  • Provide needed documentation
  • Instruction process
    • The lawyer or lender will contact you to arrange a time to sign final mortgage documents
    • We will provide a trusted lawyer contact if you do not have one

A mortgage transfer is when you move your current mortgage to from one bank or lender to another . When transfer you mortgage to another lender or bank you are doing it without changing the amount of the current mortgage or the length. If you change the amount or the length of the mortgage it would be a refinance of your mortgage. For example: You have a mortgage that is $200,000 at Bank A and you want to do a mortgage transfer to Bank B. The mortgage would still be for $200,000. If you wanted to change your mortgage from $200,000 to $250,000 then it would be a mortgage refinance because you are change the mortgage amount and not just doing a mortgage transfer from one bank to another.

  • Figure out if this is a refinance or mortgage transfer
    • A refinance is defined as increasing the size of the mortgage
    • A mortgage transfer is moving the mortgage to another lender without altering the size of the current mortgage
  • Contact your broker
    • Complete online application
    • Discussion what options best suit your needs
    • Get pre-approved and obtain a rate hold (if selecting a fixed rate)
  • Are you breaking an existing contract (term)?
    • Refinancing early is simply a numbers game, sometimes it works and sometimes it doesn’t. To figure this out, we need to know the following:
    • Original mortgage amount?
    • Current lender?
    • Remaining term/ amortization?
    • Current value of your property?
    • What your penalty is from the current lender to pay out early?
  • Review existing liabilities
    • Strongly consider adding any existing liabilities to the mortgage if your interest rate is higher on the liabilities
  • Provide documentation
  • Instruction process
    • The solicitor or lender will contact you to arrange a time to sign final docs
    • We will provide a trusted solicitor contact if required

If you are starting to look at a new home that is a great time to get your mortgage documents that will be needed into us. If you you have already found the home or property you want, it is very important to send in your mortgage documents as soon as you can, hopefully before you write an offer on the home. We will spend time looking at the mortgage documents to make sure that everything that has been given is accurate and see if we need anything else. If something needs correction or we need additional documents, it’s better to find that out as early as possible instead of during subject removal. Having the extra time will allow for things to go smoother during the buying process and hopefully will be less stress too.

Here's a list of common documents we'll ask for up front:

  • Job letter from your employer (It should confirm your start date, position and minimum annual salary and be on the company letter head with address and phone number)
  • Two recent pay stubs
  • Current mortgage statement(s)
  • DCR (debit credit ratio) work sheet
    • Only needed when you own more than two properties
  • Recent NOA’s (notice of assessment – this is what the government sends back to you after you do your taxes)
    • This isn’t usually required but takes 2-3 weeks to obtain if you can’t find it and the lender or bank asks for it
    • You don’t need to send them in but please have your Notice Of Assessments available
  • Proof of cash for closing costs (usually 1.5% of the mortgage amount)
  • Current property assessment(s)
  • **Proof of down payment (3 month history required)
    • Bank statements
    • Must have name and account number
    • RRSP statements
    • Gift letter
    • This must be signed by the donor (family members only)
    • Confirmation of that money must be transferred from their account into yours
    • Investment/ stock statements

There are a number of mortgage documents that are needed when applying for a mortgage. When you are self employed there can be a a few additional ones needed depending on your situation. The sooner you start to gather them and send them in to us the sooner we can check them over and see if anything else is needed. By having the documents in as fast as possible it will give more time to deal with any hiccups or additional information that may be needed. We always want everything to go as smooth as possible and having your documents in early is one way to help the process to go much easier. We wouldn’t want to need more information and it’s close to subject removal time which would cause more stress.

Here's a list of common documents we'll ask for up front:

  • 2 year NOA’s (Notice of assessment – what you would have gotten back from the government after filing your income taxes)
    • You taxes must be paid up to date
    • We may use this to show income
  • 2 years T1 General’s
    • Or business license (if applicable)
    • Or Articles of Incorporation (if applicable)
  • Current mortgage statement(s)
  • DCR (debit credit ratio) work sheet
    • Only needed when you own more then two properties
  • Proof of cash for closing costs (usually 1.5% of mortgage amount being asked for)
  • Current property assessment(s)
  • Proof of down payment (3 month history required to show where the money is coming from)
    • Bank statements
    • Must have name and account number
    • RRSP statements
    • Investment or stock statements
    • Gift letter
    • This must be signed by the donor (family members only)
    • Confirmation of that money must be transferred from their account into yours

There is more to buying a buying a home then just having to pay the down-payment. There are additional costs that you need to keep in mind when determining how much you can afford to use for your down-payment. Your down-payment and closing costs can not be added into your mortgage and you will need to have them available with 3 months of documents to show where the money is. A good rule of thumb to allow for your closing costs is 1.5% of the asking mortgage amount. You don’t want to be caught off guard when you get to the end of the buying process and the lawyer asks you for money that you don’t have in your account. Being prepared ahead of time will make it less stressful for you.

  • Lawyer or Notary: $400 – $1,200 (only when refinancing)
    • Ask us about our no fee refinance
    • There is no lawyer or Notary cost when transferring a mortgage
  • Appraisal (We can sometimes get the bank to cover this): $250 – $350
  • Possible Property Tax Difference – The lawyer will figure out what portion of the year you would be responsible for.
  • Home Inspections: $350 to $450 (Important to do to find out if there are any serious issues with the property)
  • Property Transfer Tax:
    • This applies to all properties that are bought regardless of age. If you are a first time home buyer you can qualify for a Property Transfer Tax Exemption if the purchase price is under $475,000. If the property is between $475,000 – $500,000 then you can qualify for a partial property transfer tax exemption. Property Transfer Tax is: 1% on the first $200,000 of the home purchase price & then 2% on the remainder of the property price.
  • GST and 2% Transition Tax: This only applies to new homes or properties being built. It is for new construction only. The 2% Transition Tax will be removed on April 1, 2015

Talking with your mortgage broker about your ideas, thoughts, questions, and goals are one of the best things you can do to get the best mortgage for you. There are so many types of mortgages and how they are set up and if your mortgage broker doesn’t know some things then they won’t be able to ensure that they are giving you the best mortgage options to chose from. The more you understand the better it will be. Having a mortgage is one of the biggest investments that people have and it should be given the time to make sure it’s the right one. When you start to discuss things with your mortgage broker, it may lead to other questions that were not thought of that could change what type of mortgage you would benefit most from. Some people want to pay down their mortgage faster, some want to treat it as an investment for tax purposes, while others want to leverage it to get more investments. Those are just three types of ideas that people want from their mortgage. Each one of them would be better set up on a different type of mortgage to maximize what it is that they want from it.

Some things you should discuss with your broker:

  • What type of rate should I take: fixed or variable?
  • Should I be considering a re-advancable mortgage at this stage?
  • How can I pay off my mortgage faster?
  • How can I write off the interest on my principle residence?
  • What is the best payment for me? (monthly, semi-monthly, bi-weekly, weekly)
  • What is the Smith Manoeuvre?
  • Does the lender collect property taxes for me?
  • What is TDMP
  • What is a Frozen VRM payment?
  • What is the new qualifying rate and how does this affect me?
  • How can I subscribe to Jessi’s video blogs?
  • We can only new refinance a for a maximum of 90% Loan to value (LTV)
  • If you are including commissions, overtime and bonuses in your annual income your will need to also show last 2 years Notice of Assessments to confirm income.
  • Just because you are refinancing, doesn’t mean you can’t lock in a rate. We can hold a rate for you up to 120 days which gives you time to get things together.
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